* Recovery gathering pace, growth higher than forecast
* Structural reforms needed in next 12 months
* Barroso sees willingness for closer fiscal monitoring
(Adds reaction and infrastructure funding proposal)
By Gilbert Reilhac
STRASBOURG, France, Sept 7 (Reuters) - Economic recovery is accelerating in the European Union and growth this year will be higher than initially forecast, European Commission President Jose Manuel Barroso said on Tuesday.
The head of the EU executive told the European Parliament in the French city of Strasbourg that the 27-country bloc had come through the economic crisis strongly but risks remained.
He said structural reforms must be speeded up and unveiled plans to raise new sources of finance for infrastructure projects in the bloc that represents 500 million people but is often accused of punching below its weight on the world stage.
Barroso gave few details on the funding initiative but said it would involve the establishment of EU "project bonds" issued in conjunction with the European Investment Bank [ID:nLDE686117]
"Over the last year, the economic and financial crisis has put our Union before one of its greatest challenges ever. Our interdependence was highlighted and our solidarity was tested like never before," Barroso said in a 40-minute address.
"As I look back at how we have reacted, I believe that we have withstood the test ... My message to each and every European is that you can trust the European Union to do what it takes to secure your future."
Barroso, delivering an annual speech to the parliament which is now known as the State of the Union address, said the economic outlook was better than a year ago although the EU has been struggling through a debt crisis.
"The recovery is gathering pace, albeit unevenly within the Union. Growth this year will be higher than initially forecast. The unemployment rate, whilst still much too high, has stopped increasing. Clearly, uncertainties and risks remain, not least outside the European Union," he said.
The latest official forecasts predict growth in the EU of 1.0 percent in 2010 and of 0.9 percent in the 16 countries that use the euro. Revised forecasts are expected to be announced later this month, officials say.
SINK OR SWIM
Not all members of the 736-seat parliament, which approved Barroso for a second five-year term a year ago, were impressed. Some said the speech did not depict the true state of the EU and ignored public disillusionment with the bloc.
"The state of the Union today is not good," said Martin Schulz, leader of the Socialists and Democrats, his opponents in the assembly. He accused Barroso of kow-towing to France and Germany, the EU's most powerful member states.
Independent British deputy Nigel Farage, a critic of the EU, said: "Mr. Barroso, you simply don't get it."
Barroso, a conservative former Portuguese prime minister who has led the European Commission for almost six years, spoke as EU finance ministers met in Brussels to discuss how to tighten fiscal discipline and prevent another debt crisis like the one that began in Greece [ID:nNDE6860CR] [ID:nLDE6860SS]
He said he saw a willingness among EU states to accept stronger financial and fiscal monitoring by their peers and by Brussels but called for more solidarity.
"Europe must show it is more than 27 different national solutions. We either swim together, or sink separately," he said.
Calling for renewed efforts to tighten financial regulations to prevent another global economic crisis, Barroso urged the parliament to pass legislation creating new pan-European financial supervisory bodies.
He also said Europe would urge the Group of 20 leading and developing countries to push for more stable and more responsible financial markets and agree on reform of international financial institutions at a summit in November.
For highlights of Barroso's speech, click on [ID:nLDE6860EI]
For a fatctbox on the speech, click on [ID:nLDE68612J]
For a separate story on the speech, click on [ID:nLDE6860JC]
(Writing by Timothy Heritage, editing by Ron Askew)